Honeywell Q4 2006 Earnings Conference Call Presentation
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Transcript of Honeywell Q4 2006 Earnings Conference Call Presentation
1 4Q 2006 Earnings ReleaseJanuary 26, 2007
January 26, 2007
Fourth Quarter Earnings Release
2 4Q 2006 Earnings ReleaseJanuary 26, 2007
This report contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management’s assumptions and assessments in light of past experience and trends, current conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission.
Forward Looking Statements
3 4Q 2006 Earnings ReleaseJanuary 26, 2007
Strong Performance In 2006; Well Positioned For 2007
4Q And 2006 Summary• Financial Performance
– 4Q: Strong Finish To The Year, Excellent Free Cash Flow Performance– Great Progress in 2006
13% Sales Growth, 80 bps Margin Expansion31% EPS Growth$2.5B Free Cash Flow, 119% Conversion
• Business Highlights– Aero – Continuing to Deliver New Wins, Top Line Growth, Margin Expansion– ACS – Great Organic Growth, New Products, Acquisition Integration– TS – Driving Productivity, Winning Great New Business for 2008-2010– SM – Benefits of Transformation Realized, UOP and Base Business Growth
• Cash Deployment– First Technologies, Gardiner Acquisitions; Active M&A Pipeline– Dividend Rate Increased 10% for Third Consecutive Year – $1.9B Share Repurchase; Reduced Share Count 5%
• Confident in Prospects for 2007; Raising Free Cash Flow Guidance
4 4Q 2006 Earnings ReleaseJanuary 26, 2007
4Q05 4Q06Sales $7,275 $8,276
Segment Profit $920 $1,097- Margin % 12.6% 13.2%
EPS, Reported $0.61 $0.72EPS, Adjusted (1) $0.57 $0.73
Free Cash Flow $611 $941
• 18% Growth
• 28% Growth
• 54% Growth
4Q Financial Summary
4Q In Line With Expectations; Strong Free Cash Flow
• 19% Growth
(1) Reflects 4Q05 Income from Discontinued Operations ($0.04) and 4Q06 FAS 123R Stock Options Expense ($0.01)
• 14% Growth9% Organic
2% F/X 5% Acq./Div.
• +60 bps
($M)
5 4Q 2006 Earnings ReleaseJanuary 26, 2007
Aerospace
Automation & Control
Transportation Systems
Specialty Materials
Total
4Q06 V’05
$2,955 8%
3,045 17%
1,193 9%
1,083 25%
$8,276 14%
4Q06 V’05
18.2% 130 bps
12.6% 20
11.6% 60
7.3% 10
13.2% 60 bps
Sales Segment Margin
Sales Growth, Margin Expansion In Every Business
4Q Segment Overview
($M)
6 4Q 2006 Earnings ReleaseJanuary 26, 2007
Continuing To Build Track Record
2005 2006 V’05
Sales $27.6 $31.4 13%Organic 7%
Segment Profit $3.4 $4.1 21%- Margin % 12.2% 13.0% +80 bps
EPS, Reported $1.92 $2.52 31%
EPS, Adjusted (1) $1.99 $2.59 30%
Free Cash Flow $1.8 $2.5 41%Conversion 107% 119%
2006 Financial Summary
($B)
(1) Reflects 2005 tax charge for cash repatriation ($0.18) and Income from Discontinued Operations ($0.11), as well as 2006 FAS 123R Stock Option expense ($0.07)
7 4Q 2006 Earnings ReleaseJanuary 26, 2007
Aerospace
Strong 4Q And 2006 Results
4Q05 4Q06Sales $2,725 $2,955
Segment Profit $460 $538
Margin 16.9% 18.2%
Commentary:
• Sales up 6%• Air Transport & Regional up 8%
OE up 14%AM up 4%
• Business & General Aviation up 8%OE up 16%AM up 1%
• Defense & Space up 3%• Segment Profit up 13%
2005 2006$10,496 $11,124
$1,676 $1,892
16.0% 17.0%
• Sales up 8%• Air Transport & Regional up 14%
OE up 23%AM up 8%
• Business & General Aviation up 4%OE up 3%AM up 4%
• Defense & Space up 6%• Segment Profit up 17%
($M)
8 4Q 2006 Earnings ReleaseJanuary 26, 2007
Automation And Control Solutions
Strong Organic Growth
4Q05 4Q06Sales $2,592 $3,045
Segment Profit $322 $385
Margin 12.4% 12.6%
Commentary:
• Sales up 17%
Organic 11%; Acq. / Div. 6%
F/X Impact 4%
• Products up 17%, 9% organic growth
• Solutions up 18%, 16% organic growth
• Segment Profit up 20%
2005 2006$9,416 $11,020
$1,065 $1,223
11.3% 11.1%
• Sales up 17%
Organic 10%; Acq. / Div. 7%
F/X Impact 1%
• Products up 19%, 8% organic growth
• Solutions up 14%, 11% organic growth
• Segment Profit up 15%
($M)
9 4Q 2006 Earnings ReleaseJanuary 26, 2007
Transportation Systems
Great Wins For The Future
4Q05 4Q06Sales $1,093 $1,193
Segment Profit $120 $138
Margin 11.0% 11.6%
Commentary:
• Sales up 9%
F/X Impact 4%
• Turbo up 15%
European volume, diesel penetration
• CPG up 1%
Consumer spending impact
• Segment Profit up 15%
2005 2006$4,505 $4,592
$557 $574
12.4% 12.5%
• Sales up 2%
F/X Impact 1%
• Turbo up 6%Overall stable conditions in EuropeStrong win rate on new platforms
• CPG down 4%Consumer spending impactFriction NA OE exit
• Segment Profit up 3%
($M)
10 4Q 2006 Earnings ReleaseJanuary 26, 2007
Specialty Materials
Growth Across The Portfolio
4Q05 4Q06Sales $865 $1,083
Segment Profit $62 $79
Margin 7.2% 7.3%
Commentary:• Sales up 25%
Organic 1%; Acq. / Div. 24%
• Fluorine Products up 2%
• Specialty Products up 2%
• Resins and Chemicals down 7%
Down 1% excl. sale of Carpet Fiber assets
• Segment Profit up 27%
2005 2006$3,234 $4,631
$257 $568
7.9% 12.3%
• Sales up 43%
Organic 7%; Acq. / Div. 36%
• Fluorine Products up 9%
• Specialty Products up 9%
• Resins and Chemicals down 11%
Up 4% excl. sale of Carpet Fiber assets
• Segment Profit up 121%
($M)
11 4Q 2006 Earnings ReleaseJanuary 26, 2007
Expecting Another Great Year
2006 2007E V’06Sales $31.4 ~$32.8 ~5%
Segment Profit $4.1 $4.4 - 4.5 9 - 12%- Margin % 13.0% 13.5 - 13.9% 50 - 90 bps
EPS $2.52 $2.85 - 2.95 13 - 17%
Free Cash Flow $2.5 $2.5 - 2.7 3 - 11%Conversion 119% +100%
2007 Financial Summary
($B)
12 4Q 2006 Earnings ReleaseJanuary 26, 2007
Sales Segment Margin
Aerospace
Automation & Control
Transportation Systems
Specialty Materials
Total
2007E V’06
~$11,750 ~5%
~11,750 ~6%
~4,600 Flat
~4,660 ~1%
~$32,760 ~5%
2007E V’06
~17.6% ~60 bps
~11.5% ~40
~12.6% ~10
~13.7% ~140
13.5 - 13.9% 50 - 90 bps
($M)
2007 Segment Overview
Continued Sales Growth And Margin Expansion
13 4Q 2006 Earnings ReleaseJanuary 26, 2007
1Q07 Sales ~$7.7 EPS $0.60 – 0.62, Up 15 – 19%
1Q07 Preview($B)
Sales Comments
Aerospace ~$2.8
Automation & Control ~2.7
Transportation ~1.1
Specialty Materials ~1.1
• ~5% growth in AT&R, B&GA, and D&S • More balanced OE / AM growth• Flying hours +4-5%
• ~13% reported, ~7% organic sales growth• Continued Solutions driven growth• Impact from US Residential exposure
• Flat top line, Class 8 impact• Modest increase LV prod, diesel penetration• Asia growth, CPG new products
• Flat top line, ~4% adjusted* growth• ~1% growth in UOP, tough comp to 1Q06• Impact from US Residential exposure
* Adjusted for exited businesses (~1%) and exited low margin sales (~3%).
14 4Q 2006 Earnings ReleaseJanuary 26, 2007
Summary
• Strong Finish to 2006
• Continuing to Build Performance Track Record
• Company Well Positioned for 2007
• Investor Meeting February 26th
15 4Q 2006 Earnings ReleaseJanuary 26, 2007
AppendixReconciliation of non-GAAP Measures
to GAAP Measures
16 4Q 2006 Earnings ReleaseJanuary 26, 2007
($M ) 4Q05 4Q06Sales $7,275 $8,276Cost of Products and Services Sold (5,637) (6,358)Selling, General and Administrative Expenses (936) (1,085)
Operating Income $702 $833
FAS 123R, Stock Option Expense $0 $16Repositioning and Other Charges 80 133Pension and OPEB Expense 138 115
Segment Profit $920 $1,097
Operating Income $702 $833Sales $7,275 $8,276Operating Income Margin % 9.6% 10.1%
Segment Profit $920 $1,097Sales $7,275 $8,276Segment Profit Margin % 12.6% 13.2%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
(1) Included in cost of products and services sold and selling, general and administrative expenses
÷
÷
(1)
17 4Q 2006 Earnings ReleaseJanuary 26, 2007
($M ) 4Q05 4Q06Cash Provided by Operating Activities $839 $1,241Expenditures for Property, Plant and Equipment (228) (300)Free Cash Flow $611 $941
Cash Provided by Operating Activities $839 $1,241Net Income $514 $585Operating Cash Flow Conversion % 163% 212%
Free Cash Flow $611 $941Net Income $514 $585Free Cash Flow Conversion % 119% 161%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
18 4Q 2006 Earnings ReleaseJanuary 26, 2007
($B) 2005 2006Sales $27.6 $31.4Cost of Products and Services Sold (21.5) (24.1)Selling, General and Administrative Expenses (3.7) (4.2)
Operating Income $2.4 $3.1
FAS 123R, Stock Option Expense $0.0 $0.1Repositioning and Other Charges 0.4 0.5Pension and OPEB Expense 0.6 0.4
Segment Profit $3.4 $4.1
Operating Income $2.4 $3.1Sales $27.6 $31.4Operating Income Margin % 8.7% 9.9%
Segment Profit $3.4 $4.1Sales $27.6 $31.4Segment Profit Margin % 12.2% 13.0%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
(1) Included in cost of products and services sold and selling, general and administrative expenses
÷
÷
(1)
19 4Q 2006 Earnings ReleaseJanuary 26, 2007
($B) 2005 2006Cash Provided by Operating Activities $2.4 $3.2Expenditures for Property, Plant and Equipment (0.6) (0.7)Free Cash Flow $1.8 $2.5
Cash Provided by Operating Activities $2.4 $3.2Net Income $1.6 $2.1Operating Cash Flow Conversion % 149% 154%
Free Cash Flow $1.8 $2.5Net Income $1.6 $2.1Free Cash Flow Conversion % 107% 119%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
20 4Q 2006 Earnings ReleaseJanuary 26, 2007
($B) 2006 2007ESales $31.4 $32.8Cost of Products and Services Sold (24.1) (25.1) - (25.2)Selling, General and Administrative Expenses (4.2) (4.1)
Operating Income $3.1 $3.5 - 3.6
FAS 123R, Stock Option Expense $0.1 0.1Repositioning and Other Charges 0.5 0.4Pension and OPEB Expense 0.4 0.4
Segment Profit $4.1 $4.4 - 4.5
Operating Income $3.1 $3.5 - 3.6Sales $31.4 $32.8Operating Income Margin % 9.9% 10.7 - 11.0%
Segment Profit $4.1 $4.4 - 4.5Sales $31.4 $32.8Segment Profit Margin % 13.0% 13.5 - 13.9%
Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin
(1)
(1)
÷
÷
(1)
(1) Included in costs of products and services sold and selling, general and administrative expenses
21 4Q 2006 Earnings ReleaseJanuary 26, 2007
($B) 2006 2007ECash Provided by Operating Activities $3.2 $3.3 - 3.5Expenditures for Property, Plant and Equipment (0.7) (0.8)Free Cash Flow $2.5 $2.5 - 2.7
Cash Provided by Operating Activities $3.2 $3.3 - 3.5Net Income $2.1 $2.3 - 2.4Operating Cash Flow Conversion % 154% +140%
Free Cash Flow $2.5 $2.5 - 2.7Net Income $2.1 $2.3 - 2.4Free Cash Flow Conversion % 119% +100%
÷
÷
Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion
22 4Q 2006 Earnings ReleaseJanuary 26, 2007